Possible War? Buy the Dip!!!

As Labor Day weekend in the US is the official end of summer, we should start to see volumes pick up again in the stock markets over the next few months. On the economic front, we have a quiet week with ISM Non – Manufacturing PMI. Investors will also look to see if we have another hurricane brewing in the Atlantic and what path of destruction it may take it as insurance companies start to close their eyes. North Korea may also come into the forefront.

Holiday, celebrate: Markets will be closed in the US and Canada on Monday (9/4) for Labor Day. When trading does resume, expect volumes to be lower as traders and quants are still recovering from their BBQ hangovers. Individual stocks could potentially see outsized moves if they have a lack of liquidity.

North Korea: Over the weekend, North Korea supposedly detonated a hydrogen bomb and spoke of an EMP. In reaction, futures went lower with safe havens such as Gold, Treasury’s and the Japanese Yen go higher. But since it continues to be a war of words, once the initial reaction sends markets lower, people keep buying the dip and we see stocks go higher. As we continue to see rhetoric out of North Korea and Trump, markets will likely go lower on headlines, and then recover.

Hurricane Aftermath: 50 inches of rain takes a long time to recede and Texas has a lot to do as it continues to recover and assess the damage from Hurricane Harvey. In the aftermath, insurance companies will continue to determine how much this will affect their bottom line. But as we are learning, a lot are in the clear as a substantial amount of homeowners do not have flood insurance. In reaction, liquor companies will likely scale back as some people will not be able to spend the insurance money on booze, drugs and maybe, a vacation. We should also pay attention to manufactures and see how long the supply chain is disrupted with a potential to halt production sending that sector trend lower.

Got gas? We aren’t likely to see the gas shortages of the 70’s, but in some areas of Texas, there is no gas to go around. This shortage will obviously affect energy companies stocks as they have no product to sell. But energy companies will potentially go higher using the storm as a reason to shoot up gas prices over night, and then take a significantly longer time to drop prices back to pre-storm levels. We are also waiting to see how long until some rigs are back online and when they will be able to ship oil since roads are still flooded.

ECB Interest Rate Statement: On Thursday (9/7), Super Mario Draghi will be speaking at the ECB for their interest rate statement. These are scheduled 8 times per year. Investors will be looking for any hints as to the unwinding of the ECB’s asset purchases. Any scaling back announcement would see a spike in the Euro, which would negatively affect exports from Europe, sending European stocks lower.

US Default: With the debt ceiling about to expire in a few weeks, we are seeing a jump in US Treasury bills that mature before the end of September, and a dumping of US Treasury bills that mature in October. From this activity, we are seeing a spike in the short term yield curve. Investors will watch for statements from Republicans as to how the negotiations are going as the government could also shut down at the end of the month without a new budget. It is still highly unlikely that the US would default on its own obligations. However, investors will keep a watch on Treasury bills as a leveling of the yield curve would signal that they are more likely to come to an agreement on the debt ceiling.